I'm afraid I gave the impression yesterday that I thought the fate of Manhattanites makes $200K+ was infinitely more tragic than the fate of single mothers making $20K. Not so. The point wasn't that beleaguered Manhattanites are particularly worthy of our sympathy--though there really is a disconnect between the lifestyle being taxed in Manhattan and Omaha at similar levels of income. Rather, it's that almost no one, including people who are quite affluent, seems to have realized that they're on the hook for the spending they support. Yet the more practical plans for funding Obama's expensive agenda involve things like a VAT, which will fall on the activists most enthusiastic about national health care. Yet none of the think tankers I know believes that they are undertaxed, or can easily spare 10% of their wages.
Why is that the most practical? Look at our current deficit. There's a reason that most countries do not attempt to fund large welfare states with a very progressive income tax, the way we do*. The income of the wealthy is fungible, mobile, and volatile. These are not strengths from the vantage of the tax system.
Paying for a huge new entitlement which will, at best, grow steadily during downturns, should not be done with a tax that will plummet the way progressive income tax revenues seem to during a depression. See: California, State of.
But at any rate, I was in no way trying to argue that it's unfair to raise taxes on wealthy people. Only that a) doing so seems to raise shockingly little revenue and b) fairly wealthy people seem to be getting a nasty surprise from this, and I expect that the surprises will get nastier as the administration is forced to dip into lower income quintiles who were told to expect a tax cut.
* (Yes, yes, I know the liberals are squirming in their seats, waiting until they can tell me that it is a MORAL OUTRAGE that I called our system progressive. "Progressive" is a slippery term with many meanings, but in this case, I merely mean that our tax system collects a vastly disproportionate share of its income from the wealthier members of society. The individual income tax, which is the largest single source of revenue, collects 75% of its money from the top 10% of taxpayers. FICA is regressive in incidence, but still collects most of its income from the higher quintiles, for the unsurprising reason that higher quintiles have more income subject to the tax. Calculating corporate income tax incidence is functionally impossible, but one hopes it falls more heavily on the rich than the poor--if it doesn't, we ought to get rid of it.
"You are missing the point!!!" you want to say, but for this purpose I am not. I am not making a normative argument about the justice of American tax distribution. I am making a positive argument about the dependence of American tax revenue on the income of the upper quintiles.)
Copyright © 2010 by The Atlantic Monthly Group. All rights reserved.
Perhaps the real problem rests now with tax rate but with the disparity in income between those top earners and the median earners.
How is that a "problem?" Did the top earners break any laws to earn their money?
If not, what's the problem? And why should they pay disproportionally more, just because they earn more?
I'm curious to what the problem is....
Well, since we know that every single human being is exactly equally capable in all important respects, the fact that poor people make lower incomes is defacto evidence of how inherently unfair and discriminatory our system is.
Much like the fact that Lebron James is an NBA All Star and I'm last to get picked in my pick-up games is defacto evidence of how unfair and discriminatory the rules of basketball are.
me three - what is the problem and if truly is a problem how do you fix it?
The poor in this country have it easy compared to the poor in the rest of the world. They get free education, subsidized food and housing and an opportunity to excel. By the way I was poor growing up (family income in the lowest quintile) and I am very successful now (family income in the top quintile). Not very many countries in the world where you can do that and in the US of A you still can. So what exactly is the problem???
The problem, as Megan laid it out, is that we're relying on a few top-earners for revenue and that that revenue stream fluctuates wildly.
I'm suggesting another way to view her concern. If top earners weren't so far out on the curve and median incomes were higher, the system would be more sustainable.
I wasn't accusing anyone of anything, or saying it's bad to have income over $250,000 or $25,000,000, but suggesting there were different ways of viewing the root cause of the instability.
No, actually, given the distribution of our tax system, that would just mean we had permanently less money. The problem is that the income of the wealthy is volatile, not that there's too much of it.
I didn't say too much money, I said to too much distribution disparity; that the gap might be the problem. In other words, it doesn't really trickle down.
I'm not sure how reducing inequality would necessarily lead to an increase in the median income, but, quite aside from that, even given your approach the answer would still have to be precisely what Megan has prescribed: raise more taxes from the greater mass of people -- ie. those in the middle of the distribution -- rather than trying to rely solely on those at the top end, regardless of how far away from the middle that top end is.
To a degree, I suppose, it becomes politically easier to expand the tax base the closer the top end is to the middle in the sense that it's a lot harder to portray the rich as evil, greedy people with so much money that could be used to benefit humanity as a whole if only wrested away from them when they don't make that much more than the average person, but I don't think that was Megan's point.
As I read it - and I'm sure Megan will correct me if I'm wrong - the inherent problem is that one way or another a program has to be funded, and that means that somebody has to pay for it.
It seems to me that issues of income disparity here cause problems primarily because the low-income people don't pay anything at all, and therefore have no discincentive to spend the money. It is, again, essentially a free good to them - with all of the problems that free goods generate.
It's not that the top earners are "so far out on the curve", it's that we're depending on their earnings.
If you scrapped the irrational and unfair "progressive" tax system for a flat tax, one were EVERYONE bore the same proportionate burden then economic downturns wouldn't drop tax revenues quite as much.
It might even have a secondary benefit of causing the lower income earners to think for a second about whether certain government social engineering programs really were worthwhile.
You miss the fundamental nature of a 'median' which is to eliminate the statistical impact of outliers, especially extreme outliers. It does not matter to the median how far out on the curve the top earners are; in fact the best improvement to median income comes from improvements to middle incomes.
The upper tercile have proven consistently to be the customers whose consumption boosts middle and lower incomes, but especially those in the middle where the median is most sensitive to improvements.
The impact of a 10% VAT will most probably be to decrease median income because if consumer spending stays the same as a percentage of GDP -- and at 70% it was seriously distorted to the high side by cash-out refis -- then only the remaining 90% will actually go for goods and services. Those of us in the middle will experience substantial downward pressure on our net incomes, wages, or whatever.
These people are my customers, and their spending will not increase by 10% just to keep my income at present levels.
Look, xlc, Megan was pretty specific. As California and New York City have learned, relying on high earners for a substantial amount of tax revenue is a lost cause. Why, because just when you need the revenue, as in a recession, the high earners are also in recession. So, the revenues go down. The Feds are seeing the same thing and that is why I expect the deficits to be larger that Obama or the CBO project.
The second point Megan made is that Obama's campaign promise of "no one below $250K" has to be violated because there is just not enough money in the upper echelons even if you were to confiscate it all. While you seem to be consumed with the myth of income inequality being bad, it has no effect at all in this case. Why? Because there is a specific amount of money that needs to be raised. Reducing the income inequality would only mean the Feds would have to dip lower into the income pool to gather their money. Think about it.
Rick
Brilliant argument, Rob. They deidn't break the law so there's no problem.
If we pass a law that says I can come to your house and beat you senseless, does that mean it won't be a problem for you?
Nutella: sure. Make sure you digest lead and copper well, first.
Yes, I see your logic.
Earning more money than I do by providing a good or service that I can't/won't provide - without chiseling, lying, or defrauding someone - is morally equivalent to you coming over to my house to commit a violent crime.
How did I miss that? Where have I been all these years?
I'm sorry, Nutella. The brilliance, obviously, resides with you and not me.
I'm going to go outside and paint me another "IMPEACH CHENEY!" sign...
The problem isn't income disparity. It is the effects of dramatic disparity on pricing and production. Not a big deal for stereos and cars. A bigger deal for housing and medical care.
So living in a small house is now a social bad? I can sort of see the argument for medical care, but housing?
disparity in income between those top earners and the median earners
There is an interesting philosophical argument to be made: what if some form of human productive (or maybe aggressive/egotistical, I am not particular about the ethical normative here) capability is indeed distributed like that? Then the egalitarian society may well not be a stable state! The distribution may manifest in income, or it may manifest in power. With existing situation, the power of, say, the CEO of a public company (or owner of a private one) to affect the life of his employee is quite limited: the worst the former can do is fire the latter!
One nasty exception where money directly translates to power is the power of litigation, which, IMO, is not sufficiently checked. Somehow the self-proclaimed advocates of a "common man" tend to be on the other side of this particular issue...
All in all, I definitely prefer the income disparity to the situation where the strong/productive/aggressive compete primarily for personal power, and achieve the same scale of disparity. Of course, I've actually lived under a [weakened and actively falling apart] form of such.
Yeah, those company towns in the 1800's were easy to walk away from. Great employee-employer relationship those were.
For the history challenged, Russia had a form of slavery -- serfdom -- all the way till 1861. Company towns my rear quarter...
Wow, just like the U.S.!
Then you should agree it puts the issue of company towns into perspective. Exercise of purely economical power ceased being anywhere near as hard on the fellow human being as the exercise of, shall I say, physical power, long time ago.
The near match between the dates is interesting, though. I needn't have gone that far for my example indeed, it was a bit reflexive.
Pinkertons, goons, hangings - US labor struggles at the end of the 19th century involved plenty of muscle & blood.
I figure we're safe from a rerun for a while. The law enforcement types dont seem as confident. Police are getting plenty of practice with mass arrests even at the lame protests that have erupted so far at things like the last Republican conventions & WTO meetings.
As I'm sure you know, company towns were important in the history of the labor movement, because of the historical role of mining in advancing unionization, but they were not a major factor in the American economy. American labor was too mobile. Only in Appalachia, for a number of historical reasons, did the company town become a sizeable factor.
No, but an oft overlooked piece of history is the poor farm, the town farm, etc.
There are more than 150 roads throughout my state called "town farm road," the place where the poor often ended. Widows with young children taking care of the insane and addicted, mostly. Now, if the town still owns the land involved, it's often the place where the community spreads the sludge from the sewage treatment plant.
Nutella on Toast ~ Nutty as squirrel poop
1800s Company towns were hard to walk away from.
"Go West, young man"; Get out of Hell's Kitchen.
Q: Why is the God of the Forge lame ?
A: Because the villagers hamstrung their Smith,
to keep him from walking away, and taking his
volatile, indispensable Black Art with him;
Plus ca change...Exit taxes, now.
This is the beginning of the 21st century, and
we are (hopefully staying) in a Hi-tech society;
The lower third of the Bell Curve can hope for
nothing better than to live and work in a small,
feudal, company town, with a brave and honest master.
For the history challenged, Russia had a form of slavery -- serfdom -- all the way till 1861.
Then they had another form till around 1991 or so.
A lot of income disparity happens because of DINKS. So are you proposing that no women should work, and they should stay home having babies, to level incomes for everyone?
My oncologist and my dentist and my gynecologist are really excellent professionals and I would not want them forced out of the workplace for such ridiculous goals.
If you want to solve income inequality, insist that all adults get married and become highly educated working couples.
Both solutions violate freedom--that whole inconvenient truth, "the pursuit of happiness."
I know happy rich people and I also know happy outlaws and slackers who think milking the system is great and work is for suckers.
There's disparity - the fact that a single-working-parent family (or single-parent) earns x, and a DINK family earns 2x with fewer expenses, and there's disparity, in which professional and executive classes earn 100x to 500x, and exist at sufficient numbers to create significant network effects in the economy at large.
Megan mentions California, appropriately.
This is one of the reasons that conservatives routinely view liberals as fools: their wishes are far larger than their wallets, or even their willingness to pay their fair share.
It's a given that lower-income voters will vote benefits for themselves - who wouldn't? What's astounding is what Megan is describing here: middle (and higher) income people ignorantly assuming that the programs they are voting in will magically be funded by someone other than them.
To be fair: until now, they have largely been correct. Ignorant, and perhaps openly stupid, but correct. This is what deficit spending is, basically. Have your cake now, and pretend that a "growing economy" will allow you to never have to actually pay for it.
But it's an illusion. Anyone with a scintilla of common sense knows it, and has known it all along.
Party's over, gang, and the tab is due.
The problems with Cali have nothing to do with its liberalism. I fail to see how a state that just banned gay marriage strikes you as being completely run by liberals.
You do remember Arnold Schwarenagger(sp?) and Ronald Reagan(sp?), don't you?
California's problems have little to do with liberalism and much more to do with stupidity and referenda.
I am amazed that you would call someone else ignorant.
"The problems with Cali have nothing to do with its liberalism."
That is a very broad, unsupportable and indefensible statement.
"I fail to see how a state that just banned gay marriage strikes you as being completely run by liberals."
That action was not taken by the liberals who dominate in the CA legislature, nor was it supported by the Governator.
Nut:
You are right that the problems with California have nothing to do with /liberalism/. They have to do with Progressive Philosophies (Socialism, Communism, Facism, Communitarianism etc.), which have co-opted the term "liberalism" in order to hide their agendas.
Reagan was a true conservative. He was also elected Governor of California a REALLY long time ago.
Schwarzenegger is, in almost all respects EXCEPT taxation, a Progressive.
It is important to note that it was not the political leaders of the state that banned Gay Marriage, it was the *people*. The same people that overwhelmingly supported the most socialist president in our history. The same people who routinely elect local, county and state politicians who run on redistributionist and big-brotherish platforms.
Don't mistake their visceral dislike for their perception of what homosexuality (google Folsom Street Fair (NSFW) for what many Californians think the homosexual lifestyle is about. Mostly because that's what California Homosexuals PRESENT it as being) is for their political positions on economic and other personal issues. California voters routinely piss all over (again Folsom Street Fair) the federal constitution to suit their utopianist fantasies of a violence free world. Lead by politicans who either know better (Gavin Newsom), or who are too ideologically blinded to bother seeing (Matt Gonzales).
You're right, but I don't think that's really what you meant.
Ignorance is bliss, indeed.
Wait a minute. Doesn't California have a Republican governor? I seem to remember him endorsing Bush and McCain.
Actually, that's not really true. The self-interest theory of voting has by now more holes in it than a Swiss cheese. For instance, red states are the biggest beneficiaries of the federal programs. Yet, citizens of red states constantly vote for the party that wants to shrink those programs.
Actually, the guy Megan mentioned is not going to fund anything: his tax burden will go up, yes, but by roughly 0.5%. So, if he assumed he wasn't going to fund federal programs, he would be right.
You equate "conservative," with "Republican."
BIG mistake. Huge. Enormous.
And the essential problem in California, and every other state that's flirting with bankruptcy, is the disconnect between desire to possess and willingness to pay.
Conservatives don't make that mistake. That's one of the core beliefs of conservatism. If you meet a person who claims to be conservative, but supports deficit spending other than times of actual National Emergency (an invasion of Maine, as opposed to a "pre-emptive strike") then you are dealing with a pseudo-conservative.
Lots and lots of Republicans in that camp, including the leader of CA.
I can type slower, if you'd like...?
Got it. And where are we to find these mythical champions of fiscal responsibility?
http://mikelove.files.wordpress.com/2007/12/deficit.gif
Look! It's JFK, Carter and Clinton! LBJ almost makes it...
LBJ Absolutely does. We all know that the balls he set in motion all hit instantaneously. None of the deficits we're faced with today have anything to do with him.
And, btw, can you show a graph that only shows spending, so that we can isolate just how much Bubba reaped from the "bubble before this one?"
BTW, which flavor is it today, grape or "red?"
One thing you forgot to mention, and I actually *would* have agreed with you: unless you view Reagan's defense spending as "national emergency," I think he's a fiscal disaster. I've had this argument again and again with conservatives that want to worship Ronnie. I'm not one of them.
McCain lost for a LOT of reasons, but one of the key ones is that he's about as RINO as RINO gets.
Conservatives saw this fiscal train wreck coming. Quaff deeply, my liberal friends, because I do believe that the cup you drink from is leaking pretty badly. Even with the press in your pocket, you can't hide this insanity for much longer.
It's one thing to say that "balls don't hit instantaneously". Maybe Administrations only have a very loose control over the economy. But they do have control over their budgets. Republican presidents simply weren't politically willing, perhaps even interested, in controlling the deficits. Democratic presidents were. They might have spent more (and I'm not so sure about that), but they paid for it.
Putting the "press in your pocket" paranoia aside, you've trashed Obama, Bush, Reagan, LBJ. And McCain is, of course, a RINO. You've said that I should never make the mistake of conflating conservatives with Republicans (so perhaps we should call McCain a CINO instead).
So I just have to ask you: have we ever had a conservative president? Do true conservatives really exist? If they do, who and where are they?
For instance, red states are the biggest beneficiaries of the federal programs.
By this statement, I assume what you mean is that red states, which are less wealthy, are net beneficiaries of federal tax redistribution, at the expense of blue states, and their comparatively greater wealth. Ironically, liberals, despite desiring a more progressive income tax system, don't like this red state/blue state outcome, which would only "get worse" if the tax system were more progressive. IOW, why is taxing the rich to give to the poor okay (assuming you believe it is) at an individual level but not at a state level?
I don't know why you say that liberals don't like the red state/ blue state outcome. What I personally don't like is some red staters pretending this doesn't happen, that they are the embodiment of self-reliance and autonomy, and that all that comes from Washington is evil.
"Megan mentions California, appropriately."
She does, but she mentions it in that annoying way that ceased to be clever seemingly eons ago, "See California, State of". "California" comes before "State of" -- just like in a dictionary, get it!!! See, "Clever, no longer an example of being". Or "To death, Beaten".
RobM1981:
Party's over, gang, and the tab is due.
What do you mean, there isn't any more ?
There is always more; That is what more means.
from the animated TV show "Dinosaurs";
Strange place for social commentary, but
truth is where you find it.
After the days of wine and roses,
when the kissing had to stop. :)
Unless, of course, they are politically connected or have a really good accountant.
Who feeds the poor when "there are no rich no more?"
Picky, picky, picky!
Chauncey, our Dear Leader.
Yeah, there's not nearly enough money to feed the poor, as once they're fed you just have to feed them again.
This is why I sometimes type in all caps. You people don't seem to care that people starve to death which I find PRETTY FREAKING DISGUSTING YOU VILE TRASH.
Seriously, who mocks the concept of feeding the poor? What's next? Mocking the idea that we shouldn't throw children down wells?
Mocking the idea that we shouldn't throw children down wells?
Oh, things of that natured tend to be practiced in more egalitarian societies than ours. We haven't advanced enough for it.
It is not anyone's RESPONSIBILITY to feed anyone else. It is one's own RESPONSIBLITY to provide the means to feed her/himself. It is IMMORAL for you to try to force me to feed anyone whom I do not choose to feed. You and I, one the other hand are both FREE to choose to feed anyone we wish. Also, is it not self evident that teaching one to feed him/herself is more effective and morally just than providing food to one who refuses to learn how to feed her/himself?
Th ethinking expressed by NOT is reflective of clssic progressive thought that began the impending death of our representative republic when the Supreme Court was intimidated by President Roosevelt into repudiating the one truly NECESSARY precondition for a free nation, that the masses cannot vote themselves the power to steal the property of another. It is now 65 years after our nation began the fundamental change into a "progressive" nation. Obama is our first "progressive" President. Enought of "the masses" are now fully invested in voting free money for themselves. The problem we are seeing now is that there is not enough political support nor enough money from "rich" taxpayers to satisfy the beast. There are two classic progressive responses to this situation. We are currently using one of them(deficit spending). We are preparing to see the other (massive inflation). My grandchildren will reap what the progressives sowed in the mid 1930's, a nation that is not free and that is doomed to decline. Without the Reagan revolution (which, in hindsight seems to have been only a temporary period of sanity) this process would have been much more fully in place a long time ago. My only hope is that the Constitution that eventually replaces our own and that will govern whatever nation replaces our own will not containt the seeds of its own demise, i.e. legalized theft by majority vote. I am not optomistic.
Basil - I love your post. Well put.
Max, I love yours more. You are so correct.
When do we begin work on the Colisseum? Perhaps we can warm things up by putting babies on icebergs, or throwing them into volcanoes?
To Nutella On Toast:
I agree entirely. It is a moral abomination that everyone in the entire world doesn't have enough to eat.
Our country is awful in this regard but by no means the worst. Look at Ethiopia, for example. They have a population of something like 80 million people and are undergoing famine conditions. The U.S. alone could easily afford to provide all of those people with plenty of food and decent shelter and everything else so that they could live their lives and raise their children free from want. And it wouldn't even cost us so much that we would notice.
In fact, there's even a good precedent for this. Back in the 80's Ethiopia had a population of about 40 million and was undergoing famine conditions. The developed world only did the bare minimum, providing enough food for those people to avoid the mass death that would otherwise have plagued them. And, of course, allowing them ro raise their children in their culture.
So, I agree entirely. It is an enormous moral failing for us not to provide the poor of the world with enough food that they can survive and raise their families. Clearly, this would not even cost that much. It may cost more in the future, when their population has doubled and doubled again and they are still no more capable of feeding themselves but that's not really the concern of ethics and morality, is it?
Rather, those of us who have developed civilizations, societies and lifestyles that have allowed us to climb out of the daily struggle of famine and want that has been the lot of nearly every human for all of time have the absolute and complete moral obligation to do everything in our power to ensure that humanity as a whole returns to that state as quickly as possible by exhausting our productive capacity on the care and sustenance of those unable or unwilling to adopt the civilization, culture and lifestyles that allow an escape from daily deprivation.
I don't know how anyone who disagrees can manage to live with themselves.
I don't live with myself. I live with a family - that I support. I work long hours to support them, in fact.
And re: Ethiopia - did you ever research that country? Do you know of many other countries that have doubled their population in less than 15 years?
I'm pretty sure there's a cure for that, and it doesn't involve you taking my money without my consent.
"You people don't seem to care that people starve to death"
Wow, that's the pot calling the kettle black. What about all the people that starved to death in the 20th century because of liberal ideals? Great Leap Forward, for example?
Liberal extremists love to pretend that anyone who doesn't agree with them just wants poor people to suffer, but the real debate is over HOW to prevent that suffering. The world just stood back and allowed Mugabe to destroy Zimbabwe, because he did it while espousing popular liberal sentiments such as 'land reform' and 'all of our problems are because of colonialism, therefore everything a black guy does to this country must be OK because he's not white'.
People are mocking the concept that the best way to feed the poor is to rob or kill anyone that has food.
@RobM1981 --
So, wait, are you saying that it was somehow a bad thing to subsidize the unrestrained growth rate of a country that had never developed beyond subsistence farming?
That somehow our well-intentioned actions to stave off their famine when they were a smaller, desperately-poor country only laid the groundwork to allow them to become a huge, desperately-poor country facing an even larger, more devestating famine?
But that would mean that our straightforward effort to stave off human suffering actually led to dramatically more of it just a generation later...
There must be something I'm missing because I know that no well-meaning action ever did anyone any harm.
Only evil people think that good intentions can lead to ruin.
At any rate, we can all rest assured that if we use our mighty productive power to save the 80 million Ethiopians facing starvatin that there is no way that in 20 years we will be facing a situation in which 160 million Ethiopians face starvation because we've merely been cultivating an archaic unproductive culture to salve our own consciences and moral egos regardless of the actual long-term effects on the people we are putatively helping...
BobW:
How about: "Tax the rich, educate the poor, 'til there are no poor no more"?
Megan, after reading comments on this site for a while now, I am convinced that most progressives cannot distinguish between positive and normative statements.
"Nationalized health care has costs and requires tradeoffs" is a positive, descriptive, objective statement. It has no bearing whatsoever on whether or not nationalized health care is a good or desirable thing. That some find regularly find that statement so offensive -- regularly calling you and others who make such statements "repugnant" and "hypocrites" -- shows that we desperately need to teach logic in our schools again.
Smart liberals/progressives read Megan -- or at least I do myself the honor of considering myself intelligent. But generally, she doesn't often say anything that a liberal would definitely take issue with, and thus no need to comment, or she says something that we do disagree with, but her board seems to attract folks like "RobM1981" up above us who think referring to Barack Obama as "Chauncey Gardener" is the height of sophistication. I know the difference between positive and normative, but it's a waste of time arguing about it if the other people on the conversation believe I'm servant of the ACORNchrist.
I think more of us would get involved if there was anywhere to take the conversation, but there aren't many persuadable people in threads, of any kind. Libertarians don't get very far on a Matthew Yglesias thread, either, it's a common phenomenon.
Oh, Megan and Matt comment sections are pretty nice. Have you ever seen Michelle Malkin's comment section? Whenever you feel people here are being unreasonable, a quick visit overthere will convince you otherwise.
Yeah, I'm a rock-ribbed gun-totin' conservative nutjob, and even I don't hang out there.
LOL
But you could have forgotten bible-thumping.
Well, she is number 4 without having the NYT as a platform. So somebody's hanging out there.
Grr. Not "you", "how".
Jamie, you are right. I painted with far too broad a brush. I was thinking of two people in particular -- commenters whose self-righteous air of pathos and piety would make Aeschylus blush -- and I said "progressives." Indeed, one of the reasons I like this site is because there are left-leaning commenters who forego the drama and argue from evidence and reasons, forcing me to confront my own biases.
As for the ACORNchrist, I heard that you people like to eat bread baked with the blood of the children of the wealthy. Is that true? ;)
We call them "matzos".
I think a leftist would be a fool to pick a fight with Megan over her genuine reporting, wherever that may occur in the midst of the commentary -- can't really tell one from the other, but that's a different topic.
Wow, I wasn't very funny at all. Creepy really. Maybe I should get back to work, corrupting minds from my perch in the left coast media.
I'm afraid I gave the impression yesterday that I thought the fate of Manhattanites makes $200K+ was infinitely more tragic than the fate of single mothers making $20K.
Nah, it wasn't that. I don't think anyone took that impression. I think what was annoying was the point that this person in Manhattan who was making $200K seemed honestly surprised to discover that he was by any accounts "rich". I understand that in Manhattan $200k/year may not seem like a lot to those who live there considering the ridiculous amounts that those above them can make, but back here in the real world $200K/year makes you among the rich people. It says a lot that some folks in Manhattan who make $200K/year don't realize that they are rich.
Yeah, Megan, I think most people were annoyed by your friend, not by you. Someone who makes $200k/year is rich, even if they choose to blow most of that money on a $60k car or three different golf memberships or extremely expensive real estate.
I think the misunderstanding is on the other side -- by not realizing how ridiculously overpriced certain areas could be. After meticulously computing the costs of life in NYC, DC, LA, Bay Area and comparing them to what I am actually used to here in Dallas, I learned to disregard any job offers from those areas completely. Yes, renting in Manhattan may seem a ridiculously expensive lifestyle choice but if you're expected to put in 80+ hrs a week for that $200K per annum, you really CAN'T have a 2hr commute.
I would also disagree that $200K/yr per family makes you rich in middle America. Makes you upper middle class, definitely. Will make you rich if you save a sizeable part of it over 20 years, sure. Makes you rich immediately, by the sheer fact of getting the employment papers signed -- nope. Then again, I do not consider a pair of BMWs or a 3,500 sq.ft. house an essential attribute of richness. The rich are those who can choose not to work another day, and still keep living the way they do.
For those obsessed with $60K cars -- if you really really want one, you can afford it on a modest salary. May not be the most rational use for your money, but neither is coffee from Starbucks, cable TV and many other things.
Max,
We realize how ridiculously priced these places are, but no one is holding a gun to anyones head and forcing them to live there. My sister lived on 86th and Riverside in a one bedroom studio and paid $2500/month. It wasn't an extravagant apartment, but IT WAS ON 86th AND RIVERSIDE!!! ACROSS THE STREET FROM THE PARK!! IN MANAHATTAN!!!
Truly it is the notheastern liberals guilt complex that they must lessen the description of "rich" by calling it "upper middle class". Get over yourselves. You're rich. Don't be afraid to admit it.
Sorry, much as I like bashing the coastal liberals, I cannot agree with you. When your lifestyle depends on your paycheck, you are not rich.
To a degree, those living in areas like Manhattan are consuming a luxury. But only to a degree. The other part is simply the difference between living in the US vs. living in, oh, Switzerland :). You are there, and things cost more. And you make more, too -- just not that much more. Of course for many occupations it would make perfect economic sense to live elsewhere (I'm pretty darn sure it does for software engineers ;) ). But probably not for everyone.
"Sorry, much as I like bashing the coastal liberals, I cannot agree with you. When your lifestyle depends on your paycheck, you are not rich."
OK, fair enough -- there's a distinction between salary and wealth. Even those with $2mil/year in salary may spend every penny and live paycheck-to-paycheck. Nonetheless, those who have the {\it ability to become rich} and squander it are no more deserving of financial sympathy than those who are rich. If anything, I'm more sympathetic to the high-earners who exercised enough self-control to put a lot away for a rainy decade.
"{\it ability to become rich}"
Oh, geez, I slipped into LaTeX -- can you tell I'm procrastinating on paper revisions?
KTL: looks like straight TeX to me, where's your \begin{}?
Ah, those were the days...
Tman & Max - I think there is confusion about income vs. asset wealth. You can have a high income but if you're up to your ears in debt and living up to or beyond your means, you aren't rich. If you have a modest income but accumulated or inherited large assets, then you are rich.
My sis and her family are farmers and by land and capital assets and investments, they are extremely wealthy. They were between health insurance a few years back and tried to sign up for SCHIP and were forced on to Medicaid against their wishes because their income was so low. They qualified as poor! Which is laughable. They are multimillionaires but not in assets that can be spent.
It's not what you make, it's what you keep. You keep what you don't spend. Comprende?
The single mom making $20k got knocked up at senior prom by the guy living in Manhattan making $200k. It's the price of the sexual revolution and all the freedom we enjoy. There's another income inequality problem for ya. Cancel the sexual revolution!!!
Megan, after reading comments on this site for a while now, I am convinced that most progressives cannot distinguish between positive and normative statements.
That has noting to do with a person's politics. Talk to anyone at all about constitutional law, and you'll quickly find that what I call the is/ought distinction is rarely made.
Given the extent to which constitutional law seems to depend on doctrines of interpretation external to the constitution I guess I don't see that as entirely unreasonable.
Rob, you are, of course, correct. I was thinking of comments on this site, but convenient and self-satisfying lapses of logic are universal. Exempting myself, of course. ;)
Yeah that was the first (and most important) major realization I had when I went to law school: despite when I’d been led (or wanted) to believe, the Constitution doesn’t necessarily reflect or embody my own personal policy preferences. Once that revelation took, the way I understood and discussed politics was never the same again and honestly, I think I’m the better off for it.
I'm suggesting another way to view her concern. If top earners weren't so far out on the curve and median incomes were higher, the system would be more sustainable.
Zic, you make a good and interesting point. I wonder why more people don't make it: less income inequality = less reliance on unstable marginal incomes = more revenue stability, especially during recessions. While I'm not sure the "solutions" to income inequality would not be worse than the initial problem, framing it this way would certainly appeal to more people than the pious moral outrage that fuels the grievance industry.
In general, the more an argument appeals, not to such pragmatism and reasoning, but to the sense of self-righteousness and moral superiority of the one making it, the less effective it is in actually persuading people.
I don't know that lower top-end incomes would reduce volatility though.
Most very high income people derive that income not from steady salary, but from part or complete ownership of a business. This makes it inherently less stable, since it is coming from a multiplicity of customers rather than a single employer.
The method used for lowering inequality would affect whether we in fact get greater stability.
Also, I don't see an easy method for having the median income go up by lowering the top incomes. If you tax and redistribute that income, you are in the same boat you began in, with tax revenue being even more dependent on inherently unstable business income.
Further, a good portion of many upper income people's wealth is due to past or present risk. Let's say I start a new buisness. If it succeeds, I'll have an income of roughly $250,000/yr, and if it fails, I'll have debt of say $750,000 with no means to repay that debt, which would be very bad for me, as well as my creditors.
If there's an equal chance of success or failure and I fail, I never show up on the upper income chart, if I succeed, then I do show up there. And even once there, I have a high income, but one that's less stable than my employees', since I must pay their wages before taking mine out.
All of this is to say that the economy isn't stable, and it sucks for some people some of the time. There's no good way around that that I can see.
Grundles,
income inequality = less reliance on unstable marginal incomes = more revenue stability
How do you figure? The incomes of successful realtors, software salesman, plumbing contractors etc. are still going to fluctuate with the economy. If you tax them at 40% or 60% and redistribute the difference, it won't impact how much their income varies from year to year.
jmo3, I was looking at it from a revenue perspective. During bubbles, the government takes in huge amounts of revenue from the inflated parts of the economy (like capital gains). Those revenues, however, disappear immediately when the bubble bursts. In contrast, taxes on most normal, middle-class incomes -- those of software salesmen, plumbers, etc. -- will go down during recessions, but the government wasn't overrelying on them too much for revenue anyway. Once again, see California.
This is usually an argument against soak-the-rich policies, but zic turned it around and said that it could be used to argue for the benefits of less income inequality. If incomes were more clustered near the median, then politicians could not rely on highly progressive, soak-the-rich tax policies, which in turn would mean more reliance on stable sources (like middle-class income), and therefore more revenue stability during lean times.
I'm curious as to whether or not zic has a suggestion as to how to reduce those income disparities. Especially how to make sure the lower incomes go up when the higher ones go down.
The disparity could be reduced either by increasing the education, motivation and diligence of those of lower income, or by destroying the motivation of those with both education and diligence.
Employers compensate employees based on their value to the organization. Arguably, their evaluations are imperfect, but must be workable if their companies are to survive and prosper. Those unwilling or unable to make themselves more valuable will continue to be relatively poorly compensated, or the companies which employ them will fail.
Or bargaining power. Or the minimum wage.
The systematic destruction of the ability of workers to bargain collectively, the decay of minimum wage laws, and all the other things both legal and cultural that have gone down in the last 40 years in the US are not exactly random. The people behind them have a very clear notion of their class self interest, and plenty of tools to enforce it.
What they lack is any effective opposition. In most countries, there are countervailing forces that prevent inequality from reaching the point where it sinks the entire system. The US sort of had that until about 1970, but one way and another, class struggle went one-sided.
What made the Great Depression unusual as the end of a period of inequality was that it was peaceful. Americans were still convinced of the overall fairness of the system. Belief is a terrible thing to lose. The gilded age twittery on display now is much more dangerous to the rich twits than anything else.
Most employees with education, motivation and diligence do not belong to unions, both because they don't need them and because they recognize that "pay for performance" and unions do not mix.
Most employees with education, motivation and diligence do not work for minimum wage once they leave high school, at least not for long.
What "systematic destruction of the ability of workers to bargain collectively". That ability exists nationwide, though it may soon be obviated by the necessity to bargain collectively (card check).
Except that you're wrong. The Depression didn't do one thing about any inequality. World War 2 did or, more precisely, its aftermath. We had a huge boom which turned our country into a sort of consumer/industrial complex. Industry supplied things that consumers bought. Of course the employees of those industries were also consumers. Then there was a huge swath of industry that supplied stuff to the final makers of the consumer goods (you cannot have a clothing factory without sewing machines, needles, thread, material, etc). Of course, the employees of those suppliers were also consumers. It was a pretty good, efficient system.
World War 2 also gave us the GI Bill. It opened up horizons for people that could not partake before. This created the management that ran all those aforementioned companies. At the same time, large companies adopted rotational management training. They hired a young guy out of college and rotated him through different types of jobs, resulting in well rounded managers with an understanding of the entire enterprise.
Unions did play a part in some of the advances, but they were allowed to get too much power. As such they were able to raise the costs too much in industries they dominated and eventually ruined those industries. Railroads, Steel and, now, Autos are the most common examples. Less well known in the US international maritime business, which is almost extinct.
Your citation of the 70s changing things is correct, but the reason had nothing to do with class warfare. It was the rise of imported products. I know liberals love to blame "greedy capitalists" for this, but the simple fact is that the American populace CHOSE to buy the less expensive imported goods. Gradually, industry after industry succumbed, along with all the suppliers to those industries. If the American people had simply voted with their wallets to support that "consumer/industrial complex" our manufacturing sector would not have been decimated. By the way, a lot of those Americans buying imported goods were union members.
From that time we also had a huge rise in government regulation, further weakening the industrial sector. When's the last time an oil refinery was built? 1978 or so? We added about 60 million people but could not increase refining capacity much. That's just one example.
Meanwhile, people in academia, government, etc came up with all sorts catchy jargon. First we were to become a "service economy". Later that changed to a "knowledge economy". God knows what they'll think up next.
The simple fact is that EVERY first class economy has grown on manufacturing and sale of finished goods. Today, the economies that have the most robust growth are, like China, based on manufacturing. The US had it. The US had it in a sustainable form and CHOSE not to keep it.
In Europe, according to a recent report I read (I'll try and find it if you like,) the disparity between top executives wages and workers wages within the company was (this is memory, may be wrong,) 20% instead of 200%.
The rich earn less, the middle class more, maybe?
I can't offer a suggestion of remedy that anyone here will like; but finding remedy for the problem of a fluctuating revenue stream relies on understanding the problem. Without that, we're just tilting at windmills. And I think, in this case, income disparity is a huge part of that problem, one that has grown significantly over the last 50 years.
A close family member was CEO of a venture firm in the industry's formative years; the disparity was much smaller then, for instance. (And in those days, the progressive tax burden also took a much larger share of his income then it would now.)
zic,
Are you familar with the middle market companies that make up such a large portion of corporate Germany? You ever wonder why that is?
In Germany, if you work for Seimens or BMW and earn a salary, you are taxed heavily. If you own your middle-market machine tool firm, for example, you can take a small salary, pay little taxes corporate tax in Germany is only 15% and when the business is sold you only have to pay Germany's capital gains tax rates which are less than 1/2 the income taxes rates (until January 2009 they were 0%)
I think the differences are real, but jm03 is right that htey're not as big as they appear: German law discourages taking executive compesnation as salary.
The difference between the US and Europe isn't just taxes. How many entrepreneurs are there in Europe? Some, of course, but the various economies there aren't as dynamic as here. Zic, you keep talking about the perspectives of VCs and entrepreneurs, but why should someone sacrifice so much and take so many chances, knowing that either they'll lose everything or else they'll succeed and finally make roughly the same salary that they could have been making all along?
And what about the question of fairness - if one person manages to contribute far, far more than another, why shouldn't the first person get to keep a proportion of what she has created? When we take away that incentive and that fundamental aspect of fairness, it's not surprising that society in general ends up with less.
I don't know Ann; my two best investments right now are either European or have European roots. Complicates filing my taxes to no end. So I don't necessarily agree with you about Americans being more entrepreneurial. Rather, I think that there are entrepreneurial industries; medical research, for instance, that are centered here because we're willing to pay outrageous prices for the newest miracle cure.
But I'll put it out here again; our current system is anti-entrepreneurial. It's stacked in favor of big business; ties their employee base to them with the strong strings of needing the health insurance, generating a very one-sided loyalty. And if recent months are any indication, our current system isn't looking out for shareholders very well, either.
Zic -
Yes of course there are some entrepreneurs in Europe, but not nearly as many. I'm surprised that you would question that, given all the research and concern there has been in Europe (and Japan, for that matter) about how to encourage and develop a VC industry, so that start-ups have a better chance to get funding.
Regarding healthcare, I agree that it shouldn't be tied to employment as it is currently (although that's no reason to kill the whole system). Nevertheless, given the rigid labor laws in Europe, as well as the cultural differences, the US still has a strong advantage in terms of small businesses being able to get employees. We're probably the least anti-entrepreneurial country on the planet.
Ann, I slept on your question. A bit of research turns up some not-so-surprising things; IPO's in 2008 down significantly, (from Hoovers:
Q1 2008: There were just 12 IPOs in Q1, a 73% decrease from Q1 2007. . .This quarter also began to usher in rampant
IPO withdrawals and postponements due to investor concerns over the economy.
Q2 2008: The 13 IPOs of Q2, which raised $4.2 billion, represented a 77%
decrease from Q2 2007. . . Less than half of this quarter`s
IPOs finished Q2 with positive returns.
Q3 2008: The five IPOs of Q3, which raised just $917 million, reflected an 87%
decrease from Q3 2007. .
Q4 2008: There were no IPOs in either October or December, and only one in
November
A stall on worries of the housing crash? Certainly. But the crash didn't manifest itself until fall; so 73, 77, and 87% decreases are huge. Somewhere, I have a recent report from the Center for Venture Research for 2008, showing a steep decline in the amount of money invested, though not in the number of deals.
But consider the history of capital formation and start-ups; laws allowing funds for small business investment and massive investment in education (the GI Bill) went hand in hand. It was extraordinary. I'm not sure Americans have that edge, now. Lots of venture money going into green energy projects; in the 1970's and early '80's, we were the innovators here. But we're not anymore. Our recent efforts went into building McMansions and Credit Default Swaps, not entrepreneurial vigor.
Additionally, small businesses are, from what I can see, being hit most by the credit crunch; losing lines of equity from banks and vendors both, coupled with a decrease in the $ of angel and venture investment. (And don't forget the burgeoning cost of insuring employees.) They're also losing work they were counting on; one company I'm watching had contracts with GE through 2011 that were cancelled and has had to lay off more than half its employees.
I did see a WaPo story (yesterday?) that the Obama admin. is considering using TARP for small business; targeting some of that money at job preservation instead of financial stability. I'll find it if you like. I'd say job preservation creates financial stability, and likely to do more to create federal tax revenue than capitalizing banks, right now.
Your real question, equating start-up success to "making the same as they could have been making all along," just doesn't make sense to me. Do you have the assumption that everyone launching a business does it purely for a profit motive? That's part of it, granted. But I'll steer far away from anyone solely motivated by dreams of getting really, really rich (thus putting them in the tax bracket Megan's talking about, here.) There are many, many reasons people launch businesses; extreme profits are often far down the list.
Zic: Sarbanes-Oxley.
Derek
zic - In terms of number of IPOs per year, I think that 2008 was the worst year for the US since the 1970s. The second half was brutal. But the IPO market is always cyclical, and will come back. As for green projects, that was the one area that was still relatively hot in the IPO market in the first half of 2008, so we haven't stopped innovating in that area. One of the strengths of the US is that our energy can go into many areas at once, unlike economies where the government directs things. Rather than relying on the judgment of just one person (say, Obama), our economy allows many people to form their own opinions and put their money where their mouth is by investing themselves, if they are truly convinced. You're right, though, that small businesses have been hit by this crisis, in addition to Obama's threat to raise taxes on the small businesses that create the most jobs.
No, I don't assume that people launch businesses "purely" out of a profit motive. It's silly to assume only one possible motivation per entrepreneur. But although profit isn't the only motive, drastically reducing the payoff will reduce the number of people that choose to take the chance, unless the other motivations somehow increase. And anyway, what's wrong with people wanting to benefit from their own contribution? Do you steer clear of house painters or plumbers that won't work on your house unless they get paid for their work? Do you consistently refuse to hire the best if they ask for even the slightest of premiums in exchange for their superior product or service? People should work hard for the sheer joy of giving you something for nothing, otherwise they're being selfish!
You have some interesting posts, but I've found that I generally have to struggle to figure out what your real point is, and what system you're advocating. If you're just saying "wouldn't it be nice if no one had to work and we could all be rich?", then I'd generally agree that such a reality shift would have many advantages. Let's give everyone a pony, as well.
What is your definition of "fairness"? If someone works hard, takes chances and manages to make an enormous contribution to society overall, is it fair for that person to keep a significant proportion of what she has created, even if it's really a lot, or do you consider it only fair that the benefits to the person responsible be capped, to make sure that the person never manages to get more benefits than another person who has done far, far less?
And, as a practical matter, you may look down your nose at those whose definition of fairness involves benefiting proportional to their contribution, but are you willing to hurt everyone in order to prevent it? Suppose there are some of those despicable people out there that are motivated largely by profit - is it better to allow them to make massive contributions while keeping a percentage (strictly less than 100%) for themselves, or should we prevent them from contributing unless they do so on your terms, in order to avoid excessive inequalities?
In practice, the only guaranteed way to reduce the gap between the top earners and the median earners is to stop the top earners from contributing as much, which will lower overall tax revenues. Do you favor that?
Cancel welfare and force people to work. With time and effort, they will be better off. "Your raise is effective when you are."
What if we taxed those making median-income-or-less more to pay for nationalized health insurance? Here's a crazy idea (I love putting forth crazy proposals :) )
The current health insurance system is a huge burden on those of low income, often costing them 5-20% of their income.
So why don't we replace that cost with a tax on those individuals?
There were 116,000,000 million households with a median income of ~$50,000 in 2007. Not incorporating any deducation, the federal income tax as a percentage of that income is 13.33%.
This represents 5.8 trillion in income, of which (excluding those deductions again), we should see 773 billion in federal income tax revenue.
If we increase the taxes on this segment of the population by 5%, we should see ~$270 billion in new tax revenues yearly.
Since it's apparently those of median or below incomes who need federally provided health insurance, this seems like a small(er) price to pay.
I'm guessing that would be enough to provide essential health insurance/care to all those making median-or-less income.
What say you: a nice 5% increase in federal taxes?
Oh wait, most of those in that bracket aren't really paying any federal taxes due to deductions? Then it seems only fair to start for this massive new beneficial program!
Joe
P.s. Yes, I'm being deliberately provocative. Maybe it's cause I just finished lunch.
I can't reply to Nutella upthread, so here goes.
The song lyric that would agree with my philosophy is, "Tax the rich, feed the poor, til there are no hungry no more". That's the right attitude-it solves the problem but is not envious, not anti-rich, not long term self destructive, not golden goose killing.
Where is sanity?
At the North Pole, hoping his workshop stays dry this summer.
The really, really rich don't usually depend on biweekly paychecks the same way the rest of us do. Upper middle class people and the middling rich (doctors and lawyers in the first couple of decades, say) do still get paychecks and live on them until they have been receiving them for a fairly long time. But anybody who means to become very rich eventually ends up relying on a different kind of income.
The exact kind can vary. Property income, capital gains on stocks, royalties on books or music, inheritance, taking money out of a business they own (other than as a paycheck), or taking the company public... None of that is income in the every-other-Friday sense. Neither is sitting on a big pile of money that you can tap any time you want to, or owning half a county that you can sell when you feel the need.
If we want to tax "the wealthy," we have to deal with the strange variations in how really rich people get, hold on to, and make use of their wealth. There's no payroll department to make the appropriate deductions on a regular basis. I think that was part of Megan's point.
Megan, the inanity of the arguments in this post aside, when will you address the issue that really deflates this argument. That is, when will you reconcile your claim that $100 billion is "too little" with the claims that Obama's health care plan will cost $75-150 billion dollars.
The only thing you've said that comes close is making the evidence-less claim that all government programs run over budget. Assuming this is the case and Obama's plan goes two times over, do you REALLY think that finding another $100 billion will be hard? Why don't you make any attempt to account for the savings individuals will have from not having to pay for their health insurance? How about the economic savings that come with the increased productivity of a worker that is kept healthy?
In short, why don't you address any of the well thought out arguments of your opponents instead of just calling them idiots who don't realize that the programs they want will have to be funded. I'm not saying those people don't exist, but they will continue to be idiots no matter what you say. Much in the way that stupid people on the right will continue to be idiots not matter what I say.
First, the government does not "find" money, it takes it from the people with the threat of force. Please learn this basic fact.
Second, what many people on the right object to is the large number of people who make destructive and anti-social lifestyle choices such as drug use, alcohol abuse, illegitimate children and refusal of freely provided education, who then do not pay any income taxes and who consume vast amounts of public services, who then vote in representatives who use the force of government to make other people give them their money. This money (taxpayer money) is earned by people who have becoming educated, worked hard, avoided drug and alcohol, who did not have children without fathers, in short those who played by the rules.
My problem with progressives is that they seem not to be able to accept that fairness cannot mean equality of outcomes (because it can't because people are born unequal and it is plainly irrational to seek an impossible outcome). Instead fairness is properly understood to mean that the system favors and rewards those who most behave in a way that makes society the most prosperous and secure. Equality does not equal prosperity, safety, security and freedom, but fairness does.
And this has what to do with my question, which was how is it that Megan is complaining about not having money for something that we have money for?
Oh, wait, sorry, don't answer me. I'd hate to think I took some of your precious brain power with threat of force.
The point is that "we" don't have the money. I (and millions of people like me) have it (because we worked hard to get it)and you want to allow the government to take it from us (by the threat of force) and give it to some crackhead or chronic gambler or permanent adolescent who refuses to pay for health insurance for themselves. Does that clear it up for you?
despite when I’d been led (or wanted) to believe, the Constitution doesn’t necessarily reflect or embody my own personal policy preferences. Once that revelation took...
My #1 (and, really, only) piece of advice to people going to law school is to have this epiphany (about all law, not just the big C) before ever setting foot there, because it is the path to good grades and good lawyering. My favorite opponents are the ones for whom the revelation never took.
Rob: does the old cliché that "the laws don't have to make sense" figure into it too, somehow? ;-)
M.C.
I think you'd be surprised how much the income of most people in the 150k above level is subject to violitility. The higher you go, the more of your income is going to be in the form of incentive compensation, stock options and bonuses. It's very rare to find someone making 350k who gets that as a straight salary.
The reason so little income is gained from tax increases on the very rich should be immediately obvious: because much of the income of the very rich is not subject to these taxes. Billionaires, from whom a 30% tax rate of their income should be quite a bit, overwhelmingly get to categorize their income as capital gains, which has a 15% tax rate. I'm sure you've all heard Warren Buffett's statement that he pays a lower tax rate than his secretary, and it's true for most people like him.
The current top bracket rate is 36%, if I recall. Try lowering that to 30% and raising the capital gains rate to 30% and I bet you'd come out with more revenue. And that's not getting into the corporate rate. I believe I read your average large multinational corporation pays an average of 2% taxes. Not to mention the hundreds of billions a year in loopholes that somehow never get closed.
So what you have are people like Megan that (rightly) point out how making the $300k Manhattanite pay a few more percent isn't going to do a whole lot. But then she uses that to say that we shouldn't get any more progressive because taxing the rich isn't useful, while completely ignoring all the ways in which making the truly rich pay the *same* tax rate as that $300k person currently does would raise massive amounts of revenue, more than enough to pay for health care. It's just that that option seems to be permanently off the table. It's as though the people it would affect donate heavily to both parties.
Raising the capital gains tax in the only idea that everyone (ezcept you) agrees with reduce money to the government.
The solution to this problem is very simple. We need to repeal the 16th Amendment and pass a 10% Maximum Tax Rate Constitutional Amendment. The MTR Amendment would allow the federal government to tax incomes at no more than 10%, capital gains at no more than 10%, sales (or VAT) at no more than 10%, tariffs (if any) at no more than 10% and corporations at no more than 10%.
The result of my 10% MTR Amendment would be very few deductions (if any), taxes which apply to all who are in the country but which taxes the "rich" more and taxes that raise sufficient revenues for the government. By capping the RATE at which government can tax, businesses can plan and grow with certainly about tax liablilities. The IRS and the tax avoidance industry would be wiped out and compliance costs would approach zero.
This is a win-win idea whose time has come. I predict that my idea will not be favored by the same "progessives" who bemoan the current system.
"everyone (ezcept you) agrees with reduce money to the government."
By everyone, of course, you mean everyone with libertarian/conservative economic principles. I mean, I'm aware that the "reducing capital gains taxes solves every economic problem" school of thought exists, but I'm sorry to say it's limited entirely to the Republican parties and those more right-wing. Which, I'm sad to say, is less than half the country, and certainly far less than half the economists.
Your proposal is, of course, complete lunacy and would destroy the American economy in short order. But at least we can agree on something. The tax avoidance industry should be wiped out. I'm in favor of a budget-neutral plan that would eliminate as many loopholes as possible and then reduce overall taxes by the same amount as the extra revenue produced from that. Of course, since you believe fewer taxes produce more revenue, I suppose you might somehow think that closing loopholes reduces revenue. I would hope you're not quite that insane.
"This is a win-win idea whose time has come. I predict that my idea will not be favored by the same "progessives" who bemoan the current system."
Uh, yeah, you'd be correct. Under your idea the government would have to be so small and abandon so many of its social net policies that it would become pretty much the opposite of what any progressive would want. Understandably, that's exactly the goal of your proposal. But you should hardly think that we would share that goal. Our problems with the current system are far different.
Not even those, if they are the serious kind.
But you are a patient men, Adam, to bother with the author of the adolescent Randian rant upthread.
huh, "man". Because Adam is probably just one person.
Geesh, typos today are worse than usual, which is pretty bad already.
budget-neutral plan that would eliminate as many loopholes as possible and then reduce overall taxes by the same amount as the extra revenue produced from that
An exact description of the 1986 Tax Bill, still affectionately known in the trade as the "Tax Accountants Full Employment Act"!
The approach of writing tighter & tighter rules to prevent scamming has reached a point where the complexity is liable to bring down the entire tax system. A few years ago, there were some schemes floating around to restart with something simpler, but they faded out. Meanwhile, everything from the COBRA subsidy to energy bills is making the IRC grow & grow.
Downpuppy,
You're absolutely right about that. Although liberals and conservatives don't agree on how much to tax, commom ground can be made on tax simplification. Much as I personally hate to see it, we are eventually going to have to pony up more taxes on the middle class to support the graying of America. A most efficient tax collection system will help maximize revenues.
If I were Obama I'd have put tax simplification on my agenda. If done correctly it's a common sense reform that can help shore up the independent vote.
"The current top bracket rate is 36%, if I recall. Try lowering that to 30% and raising the capital gains rate to 30% and I bet you'd come out with more revenue."
Only if the increase in revenue resulting from the reduction in the top marginal tax rate exceeded the reduction in revenue resulting from the increase in the Cap Gains rate.
So your contention as I gather is that simply reducing the top marginal rate itself (or the capital gains rate, presumably) *increases* revenue? I think I heard that one for the Bush tax cuts. I thought that brand of lunacy had stamped itself out. But this blog draws all types.
I believe a little research might convince you that cap gains tax revenues have declined each time the cap gains rate was raised. This is the result of investors holding their current investments, rather than trading to what they believe to be more beneficial investments. This behavior is beneficial on a micro-economic scale, but inefficient from a macro-economic perspective.
Conversely, cap gains tax revenues increase on rate decreases, especially immediately after the decrease, as investors reallign their portfolios.
Except that tax revenues DID increase. What led to deficits was spending.
Who Knows? Maybe all we need to do to fund our NHS is to take over Switzerland like we did Puerto Rico. The IRS would like to get information on 51,000 U.S. resident controlled bank accounts and the Swiss are refusing to give it to us.
You know you're a libertarian if you think that using the word "disproportionate" with reference to the tax code is a positive and not a normative argument.
Breathless statements like, "The top 10% of taxpayers pay 70% of the taxes! It's vastly disproportionate!" are misleading. When you look at the data, you see that the top 10% of taxpayers earn 46.4% of income and pay 70% of federal income taxes. Disproportionate? Granted I guess, if by "disproportionate" you mean "the two percentages do not equal one another." By that logic, then, the fact that the top 10% of earners account for almost half of all income is also disproportionate.
And with apologies to Megan: yes, yes, I know the libertarians are squirming in their seats, waiting until they can tell me that it is a MORAL OUTRAGE that I called our distribution of income disproportionate. In this case, I merely mean that our market system allocates a vastly disproportionate share of its wealth to a small number of people. "You are missing the point!!!" you want to say, but for this purpose I am not. I am not making a normative argument about the justice of American income distribution. I am making a positive argument about the concentration of American wealth in the hands of a relatively small number of people.
By that logic, then, the fact that the top 10% of earners account for almost half of all income is also disproportionate.
It only matters if the top 10% are sufficiently productive such that they are justified in claiming nearly half of the income. I would say they are sufficiently productive - others would argue that they are not.
Zing!
But you don't understand. "Disproportionate" just means not proportionate, like a flat tax. It's purely descriptive, with no negative connotation whatsoever.
In fact, only liberals get pissed when you tell them they have, say, a disproportionally large head.
Nimed,
with no negative connotation whatsoever
Huh? I can't say that I've ever seen or heard "disproportionate" used in a non-judgemental manner .
But my point is, disproportionate to what? If your argument is that it is disproportionate for 10% of tax payers to pay 70% of income taxes, then the only thing that would be proportionate would be a lump sum tax per person equal to 1/300,000,000th of the Federal budget. If earning 46.4% of AGI (and one point I failed to make above is that thanks to our tax code, AGI is a far less accurate measure of "actual" income for the upper strata than it is for the lower strata) and paying 70% of Federal income taxes is disproportionate, then the only thing that would be proportional would be a flat tax at all levels of income, something I'm sure would find some support among Megan's commenters.
And if your response is that proportionality ought not to be the primary criterion for a tax system, then fair enough, but why then do libertarians and economic conservatives keep trotting out these numbers as if they make a prima facie case against the current tax system?
I would think if you asked the average innumerate voter, "What percentage of income tax revenue comes from the top 10%?" You would get a variety of answers from 5% to as high as 25%. I doubt 1 in 20 would guess correctly that the top 10%$ of earner pay upwards of 70% of all Federal income tax.
Indeed if anyone has non-wonky spouse or coworker handy - just ask them how much of the income tax revenue comes from the top 10% and report back your finding.
I'm sorry, my attempt at irony was clearly a big failure.
Your comment was right on the money, Kobayashy. Of course the word "disproportionate" has a negative connotation. In this context, it clearly suggests unfair, and it's pretty disingenuous for Megan to pretend that she's just being descriptive and using neutral terms.
And your point about the demagoguery of 10% of tax payers paying 70% of taxes also needed to be said. Presenting this statistic without explicitly stating the income of the 10% belongs in the Rush Limbaugh and Co basic bag of tricks. It hides the fact that the 70% burden is both a product of the progressivity of the tax AND of income inequality.
To give a simple example:
In a fictional country of 100 people, 99 earn $1/year and 1 gains $100/year. This country has a non-progressive, flat tax (say 20% of income for everybody, although any percentage will do).
This state of affairs will make this one poor rich guy (which constitutes 1% of the population), pay for half the taxes in the country! With a flat tax. This "injustice" stems from the extreme income inequality in the example. The guy also earns half of his country income.
But, if you omit income information, if you say that 1% of the population pays for 50% of the total tax revenue, people will tend to deduce that those 1% are swamped with extremely high tax rates.
Megan says that our system is "very progressive" compared with other countries. I don't know where she gets this information. Most other countries have a higher upper bracket than we do, and, like in our, usually the lowest bracket is zero. I don't see in what possible sense can our tax system be more progressive.
I love that we are having this "proportionate" conversation when there were plenty of people screaming about the X million dollars going to the top 1% of wage earners.
Where was the rush from these same people to talk about the proportion of income those wage earners make?
"I merely mean that our market system allocates a vastly disproportionate share of its wealth to a small number of people."
This is exactly the problem, that someone can actually beleive this sentence is true.
The "market" does not "allocate" wealth. Wealth is "produced" and "created" by the "work" of productive and creative people. Those who produce and create wealth have the natural right to keep their property, just like you have the right to keep a thief on the street from stealing your watch. The government has no more moral right to take the wealth of a citizen (for other than essential governmental services) than the thief has to take your watch.
To live as you say that you beleive, you should willingly give your watch (and wallet and car) to every thief you see. The thief has less wealth than you do, therefore he is "allocating wealth" in a more "progressive" way and he is doing so in a much more efficient way than the government, since he has very little bureaucratic overhead to fund.
Nimed-
You say:"Megan says that our system is "very progressive" compared with other countries. I don't know where she gets this information. Most other countries have a higher upper bracket than we do, and, like in our, usually the lowest bracket is zero. I don't see in what possible sense can our tax system be more progressive."
I think your confusing the progressivity of the income tax system with the progressivity of the tax system as a whole. In other words, the US has a less progressive income tax system but gets a higher percentage of its revenue from the income tax. If VAT taxes etc. are a much bigger share of revenue in another country, then it could have a less progressive tax system than ours, because those taxes tend to be regressive. I don't have enough information to confirm this one way or another, but it seems quite possible. I know US states have generally less progressive tax systems than the federal system for similar reasons-sales tax is a big portion of state revenue.
A value-added tax (VAT) would be immoral (and hell) for retirees. I have saved a lot of my hard-earned money over the years (taxed once already) as opposed to spending it on lavish vacations, or cars, or a second home, or whatecver. And now, when I need to spend it in retirement, the progressives want to tax it again. If we impose a VAT, there should be a one-time exclusion to protect existing savings.
I have saved a lot of my hard-earned money over the years (taxed once already) as opposed to spending it on lavish vacations, or cars, or a second home,
He buddy we all make mistakes - what did you expect to happen?
LOL! I find myself in rsbsail's boat- prodigious saver for over 15 years of my career, and now facing the possibility of paying taxes all over again on the same money. And, jmo is correct, it was probably silly to not have seen this coming.
Yeah, I know. Stupid me.
Yancey & rsbail,
If you spend your money on a vacation, that experience can never be taken from you. If you save your money, any number of things: fraud, inflation, market volatility and especially taxes can conspire to prevent you from every enjoying the benefits of all your deferred consumption.
Just something to keep in mind as you make your saving vs. spending decisions.
jmo,
I am 43, and I was attempting to buy a great portion of my remaining, healthy years to do with as I want rather than have to work 40-60 hour weeks until I was 62 or 67. I am close to my goal, but a VAT would undermine all my frugality to reward spendthrifts.
Having said that, I doubt a VAT will ever pass without significant refunds for savings for the simple reason that older people vote and older people have the most to lose from a VAT.
jmo3:
I suppose all us grasshoppers should just loot all those evil selfish ants for everything they've got! How DARE they work and save so that they don't have to depend on the great almighty government when the winter comes like the rest of us will!
I sympathize, but I would not say that it would be immoral to impose a VAT w/r/t retirees. If you're going to treat retirees as a group, I would say they enjoyed a big portion of the deficit spending and unfunded entitlement programs. I think you could put together an argument that retirees should be stuck with higher taxes b/c they didn't produce enough offspring to keep Social security solvent.
/
Sticking high wage earners (or savers, or any other group) with a disproportionate amount of the tax burden just b/c there is the political will to do it is immoral in my opinion, but it's just as immoral whether you're talking about retirees, the middle aged, or people just starting their careers.
Zic's idea rests on a highly doubtful assumption (others, most likely, as well, but it is not my intention to address those)- that high income people generally are overcompensated for their work, and that everyone else is generally undercompensated for their work. If this is true, then lowering the discrepancy can lower volatility in incomes and income taxes, and the effect is going to be proportional to the actual degree of overcompensation/undercompensation.
I do think some high earners are overcompensated, but I am also sure some are undercompensated, and the same applies to everyone else. However, in general, the market is going to do a fairly good job of pricing the value people add to the economy, and that price is the compensation they receive in voluntary transactions of all kinds.
The market system prices the value you add, it does not "allocate wealth". Your income comes from the people who thought your added value was worth it.
Yancey: overcompensated by whom? Not the taxpayer, generally speaking. Then why should the taxpayer aka voter have any say about it?
I'll keep repeating that question: why does it always have to be "we"?
I think the ugly truth that people don't want to face is this:
Lots of people are perfectly content to have below-average incomes.
And why not? Even those at the poverty line in 2009 live better than most people did in the 1950s. Getting ahead is generally hard and involves lots of studying and being responsible and risking failure and putting up with other jerks trying to get ahead. It's stressful. Why bother working hard for a little more status, when you're fed, clothed, housed and entertained with minimal effort? Why not let the suckers pay all the income taxes?
There seems also to be a common notion that high incomes come with very little cost to them. For those in the medical professions that is almost laughable. Most doctors enter practice with substantial debt burdens incurred to support themselves through school and residency training. They then face a much shorter earnings career. So you could lower their incomes and then increase the numbers of student loan defaults. Similarly lawyers and other post-graduate professionals often have substantial debt burdens that others do not face. One can make similar arguments about entertainers,sports earners,and the like.
For many there is the pure talent. But as someone has noted, there are also thousands of hours of practice that doesn't come without cost.
It should be also noted that many of the numbers on quintile earnings do not disaggregate between families and singles. Many of the high earning 1% folks are two income families. Many at the lower end are single parents.
So you're saying that people who make high incomes often are able to do so because they have spent years of dedicated work improving themselves through education and practice?
But isn't that itself inherently unfair? I mean, who's to say that the stupid and lazy are any less deserving of having pleasant, easy lives than the smart and dilligent?
Listen, just because the system often rewards hard work and grit doesn't make it a good system. A good system would be one where those people work hard and better themselves purely for the joy of giving the fruits of their labor to the indolent and helpless.
Ah, Blighter, lead the way! Where can I find this worker's paradise? Are we by any chance going to the country led by the guy with poufy hair, dressed in jumpsuits and platform shoes, whose bright idea for improving his country's film industry was to kidnap his favorite actress and producer? The one born on a sacred mountaintop who always bowls a perfect game and who got 5 holes in one the very first time he ever golfed? I can't wait to walk blissfully through the perfect country, where there's so little inequality of income that almost no one can afford a bicycle.
I assumed blighter is being sarcastic. At least I hope, cause otherwise that's a pretty bizarre statement.
I agree, bombloader. I didn't mean to imply that I thought blighter was serious, although there have been many that have fallen for that line of thought.
Shouldn't the word "fair" be banished from polite discourse as thoroughly as some other four-letter words?
I don't let my (undergrad or MBA) students use the term "fair" unless they first define their version of it, since it's so subjective.
Yancey,
Why do you think so many people are so ignorant of the forces that determine differing levels of compensation? I'm certain that if more people were exposed to the inner workings of the system they would be much happier and much more satisfied with their life.
In my work I am often asked to explain to people what options are open to them and what those different options pay. Upwards of 90% of totally dumbfounded by the experience.
/agree
It's surprising this level of ignorance persists in the Internet Age. The first thing I did in 1994 when choosing a major was sort through stacks of reports on post-graduation salaries. Now you can usually get that on your computer.
I was about to make the remark about single earners vs. couples. I'm not in the 10% of earners. However, if I married someone with the exact same income as mine (and who is also not in the top 10% for that reason), our joint income would put us in the top 10% easily. It wouldn't get us any more toys or political clout, though, and it would take exactly the same amount of effort to earn.
How this would put us in the same category as Warren Buffett is a mystery.
I confess that I have not read all of the 100+ comments here, so I apologize in advance if this is duplicative...but it strikes me as more than a little bit irresponsible when our government suggests repeatedly that a revamped healthcare system, better schools, greener energy policy, etc. are so fundamentally important that 95% of the country should have to pay exactly nothing to achieve these objectives. I wish (perhaps this is utopia) that they would talk to all of us like adults, come clean about what things cost, and then tell everyone, truthfully, that there is no such thing as a free lunch. This is what they have done in many European countries, and the voters there have had the opportunity to decide which services they were willing to pay for (and most people across the pond pay something meaningful, including those in lower income brackets, to support their social safety nets). If a broader cross-section of the country is willing to pay for new services, so be it. If not, I can live with that as well. I'd just like a simple, honest assessment of the situation. Even Matthew Yglesias made a roughly similar point the other day. This fiction that two-earner households, individuals who reside in higher cost-of-living cities, and the Warren Buffett-types should pay for the entire lot strikes me as anything but the "new era of responsibility" in which we are purportedly now living.
I agree with rpott001--everyone should have some skin in the game. Perhaps the ObamaCare plan should just mean you pay 5% of your household income from whatever source, whether it's income, cap gains, Social Security check, pension, welfare check, whatever. This plan is looking like it's shaping up to mean half or more of the population will not pay anything and it will be provided by the other half who are already paying for their own and everybody else's health care. They're paying three or four times over if you put it all together.
Let's salt the leeches.
When that schmooze during the election came down, 'no one under $250K', I watched in amazement it repeated as gospel by journalists.
Similar to the Goldman post, it was either stupidity or fraud.
I vote for stupidity.
Derek
I believe it was a highly toxic combination of stupidity and cupidity. Its acceptance by a plurality of the voters, on the other hand, was almost certainly stupidity.
The one thing I have concluded about common sense is that it is no longer common. We are in "deep and abiding".
Megan makes excellent points that a progressive surtax is just not an impressive money source, and that it would be dangerously negatively correlated with the spending it is intended to fund. We can debate endlessly about the Manhattanites at the bottom of the surtax range and what they can "afford", but the fact is they are being included because omitting them in favor of going after only the "really really rich" would bring in only high variance revenue around an average of peanuts.
Another reason that "most countries do not attempt to fund large welfare states with a very progressive income tax" is that, unlike the US, they cannot collect income tax on expatriate citizens, and for a European expatriating is a matter of smaller distance and fewer logistical hurdles than for an American. The overhanging option of that exit strategy keeps those governments from over-reaching.
Moreover, the richest Europeans already have myriad ways of shielding themselves from the worst effects of high income taxes--- much as rich Americans used to have before the Tax Reform Acts of 1976 and 1986. Despite 50%, 70%, and 90% marginal rates at times, a much smaller share of revenue was actually paid by high income people--- Feldstein has documented this in many a scholarly article. Before 1976, one could actually generate cash by investing in terrible projects (movie production and minerals were favorites) funded with nonrecourse loans, a real-life analogue of "The Producers" where the underlying investment had to fail. Between 1976 and 1986, "passive" investments could still generate a lot of paper losses offsetting actual income. Moreover, until 1986 the pure wage earners (such as most of the bottom 90% of the distribution) were unfairly trapped by inflation-caused bracket-creep; their taxes rose even if their real wages/salaries did not.
Since 1986 we have had fewer (and generally lower) rates, many fewer escapes from paying those rates, and the top income earners have paid a larger and larger share of total income tax. The disturbing thing about the current regime's tax plans is that they appear to contemplate a system that has never existed--- much higher marginal rates but no meaningful shelters from them. That has never been an equilibrium, and given human nature probably never will be.
It's your blog but personally your post seems too defensive.
I'd also like to remind everyone who refers to Warren Buffett as an example of a top 1% taxpayer that Warren Buffett pays little in federal income tax because he takes out very little money from his company and does not sell its stock. The book Snowball does a good job of explaining how his entire life can be understood as accumulating wealth and influence on the public without paying the dues that might be expected from such status. And having donated the bulk of his fortune to the Gates charity he will avoid paying any estate tax on it. People should find a more accurate cliche. His actions, ignore his words, are a better example of a "hands off my money" libertarian than a "big government is good government" progressive.
Lemmy - as a senior professional with a post-graduate degree, I make nowhere near 100x what anyone makes (except a part time summer intern or soemthing). I may make 4x or 5x what a poor person makes but then I've been working for about 10 years in a field that requires intelligence and education and performing difficult and complicated tasks while taking responsibility for the outcomes. Is it unreasonable that I make 4x or 5x what a gas station clerk makes? For the record, I make LESS than some truck drivers or UAW workers.
Executives are in another whole realm...
I wish the new posts were marked in some way. In a long comment thread like this, reading it a second time is an exercise in frustration... I either read the new posts at the bottom and miss all the new nested posts or I read the WHOLE thread again, looking for new posts. Ugh.
Wikipedia does this by quintile, not decile, and they give the 2004 numbers. For what it's worth, in 2004 it took a household income of $18,500 to get you out of the bottom fifth and into the second fifth. It took a household income of $88,030 to get out of the fourth quintile and into the top one. That's higher by a factor of 4.8. It's also a fairly ordinary number, one achieved by many families when there is another worker or when the main breadwinner gets another credential.
The entry makes the point that married couple households found disproportionately in the top two quintiles. Singles, especially women, are more likely to be at the bottom. I'm sure you're all picturing welfare moms when I say that, but there is also a note that almost as many people in the bottom quintile own their homes as rent. We are also talking about elderly widows, who may have assets even if their incomes are low.
It's not the top quintile as a whole that's earning incomes drastically out of line with what everyone else gets. It's the top couple of percent.
Apologies for any redundancies - I'm not going to read 160 comments:
No, Megan, I was not sqirming in my seat - at least until you said that tax incidence is "vastly" disproportionate.
This is just not true under any reasonable interpretation of "vastly."
Moreover, it is wholly irrelevant that the government may "[collect] 75% of its money from the top 10% of taxpayers", absent any information on what share of income or wealth is associated with that 10% (56% of income, per my link).
I would add that "progressive" is not a slippery term at all - it means that tax incidence increases supralinearly with income or wealth. Seriously - what other meaning, associated with taxation, is there?
Sadly, this all suggests you either don't know what you are talking about, or that you are an outrageous exaggerator.